China has lifted millions out of poverty, why shouldn’t its authorities win a Nobel Prize? This is the question put by prize-winning economist Dambisa Moyo to her audience during a talk delivered at Sciences Po last week on “Global Shifts in Economics, Politics and Business: what’s it going to take to be successful in our future world?”. I paraphrase, but the sentiment is real.
According to Moyo, we are experiencing three main economic trends: scepticism about globalisation, increased protectionism, and the increasing role of the state—all of which are interlinked. But she reminds us that trends adopted by opinion makers often become the consensus very quickly, perhaps too quickly, such as #democracyisgood #aidisgreat #freemarketsareefficient (the list goes on). These trends can be quickly undermined by events that go against the norm, sometimes known as ‘black swan’ events. Moyo analyses these trends, but it’s up to us to keep questioning them and the status quo.
In spite of previous trends advocating the market economy approach, popularised during the Reagan-Thatcher era and since retained by the West, Moyo shows that outcomes have not been supportive to those trends. Globalisation sceptics are being given more and more ammunition as studies such as ‘Globalization and the Great U-Turn: Income Inequality Trends in 16 OECD Countries’ by Alderson and Nielsen examine the potentially negative effects of living in an increasingly open and interconnected society. Is globalisation good for us or not?
That brings Moyo to her second point: creeping protectionism has been the response to this challenge, as evidenced by recent trade agreements. Multilateral trade agreements have become increasingly difficult to negotiate. Bilateral agreements have soared in their absence. Between 1980 and 2005 free trade agreements have increased more than six-fold to more than 100 as compared to the 17 signed between 1958 and 1979. What impact will that have on the future exchange of goods and services?
Moyo illustrates the third trend, the increasing role of the state, by asking us “which do you think are the top three biggest employers globally?” [what follows feels like a silent drum roll]. In order of highest employer first, she tells us: the American government, the Chinese government, and finally Walmart. Big government is getting bigger. How much further can and should it grow?
Moyo draws our attention to recent political shifts challenging the notion that democracy is good. She believes in democracy herself, but shows it is a complex beast often undermined by the rise of illiberal democracies as well as the uncertain link with economic growth. Despite the trend that tells us democracy is a prerequisite for economic growth, Moyo says this may not be the case, giving empirical examples contrary to this trend. China’s development is a major black swan that disproves the argument that democracy is needed for economic growth, but studies including that of economist Adam Przeworski find that the level of economic growth can be a predictor of the stability of democracy. Just how important is democracy then? Not only does the evidence cause us to question the link between democracy and economic growth but it tends to be long-term process. Given the current political instability in Ukraine, and recent turmoil in Egypt, Turkey, and Brazil, Moyo reminds us that developing a stable democracy takes time.
Finally, let’s get down to business. Moyo is brief on this, but her main point is that everything happens in a shorter and faster time frame. CEOs have on average a lower tenure than before, the lifetime of a business is shorter and the duration that investors hold onto stock is also significantly shorter than before, says Moyo. How much has this changed? What impact does that have and is this good or bad?
An informative conference which highlighted the changing global picture, soon came to a close. More than the shifts presented, the three main sentiments I took away from this are that we ought to look at the facts, and as much of them as possible, we must not be afraid of what they show us and we should address them with humility and openness. That sounds like a reasonable basis for a constructive discussion.